ICBC, China’s largest bank, already operates in the U.S. through its New York branch.

Under the Fed deal, ICBC, China Investment Corp. and Central Huijin Investment Ltd. will become bank holding companies. The Chinese government owns 70.7% of ICBC’s shares.

The Fed also said it will allow the Bank of China, the third largest bank in China, to expand its U.S. operations to Chicago.. At the moment, the Bank of China operated two branches in New York and a limited branch in Los Angeles.

In addition, the Fed also approved the application by Agricultural Bank of China Ltd., the fourth largest bank in China, to establish a branch in New York. At the moment, the Agbank only operates a “representative office” in New York.

The agreements with the Chinese banks comes just after Fed Chairman Ben Bernanke flew to Beijing for talks with senior Chinese economic officials as part of the U.S.-China Strategic and Economic Dialogue.

After the talks, China agreed to let foreigner control up to a 49% stake in Chinese broker-dealers, up from the prior threshold of 33%.

John Dearie, executive vice president for policy at the Financial Services Forum, a trade group of the biggest financial firms in the U.S., welcomed the recent progress from the bilateral talks in Beijing but said “much more progress” needs to be made with regard to foreign participation in China’s financial sector.

“U.S. and other western financial institutions still face major obstacles to full participation in China, the effect of which is to slow badly needed reform in China’s financial system,” Dearie said in an interview.

One key to allow the Chinese banks to expand into the U.S. is that the Fed has decided that China’s bank regulators are now up to the job of supervising these large and complex institutions.

The Fed said that China’s Banking Regulatory Commission has recently taken steps to strengthen its supervisory programs, and conducts annual examinations of the largest Chinese banks.

The International Monetary Fund also recently said it approved of China’s overall regulatory and supervisory framework.

Jaret Seiberg, analyst at Guggenheim Securities, said Chinese banks may now look to acquire regional banks in order to establish a U.S. footprint.

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